Bankers in Lebanon cry foul over ‘double taxation,’ look to President

BEIRUT: The Association of Banks in Lebanon and other private sector leaders are weighing the few options open to them as recently approved new tax measures, poised to be implemented soon, threaten to have a detrimental effect on their businesses and the overall economy. The few available options include trying to persuade President Michel Aoun to use his prerogatives to block some of the tax measures that were approved by Parliament to finance the salary scale increase for state employees.

If this option fails to produce any concrete results, then the ABL and other private professional associations such as the Order of Engineers and Beirut Bar Association could contest and challenge the tax measure before the Shura Council and other constitutional institutions.
But the ABL prefers to persuade the president and other senior officials to amend some of these taxes before pursuing this course.

For this purpose, a delegation from the ABL headed by its president, Joseph Torbey, is expected to visit Aoun at the presidential palace Monday to explain to him the serious repercussions of some of the taxes on the country in general.

Torbey will assure the president that the association is not against tax increases in principle but it has serious concerns about what bankers see as double taxation.

Lebanese commercial banks are paying a 5 percent tax on interest generated from Treasury bills, certificates of deposit and Eurobonds, not to mention a 15-percent tax on their profits.

However, the bankers stress that the authorities agreed in the past not to tax profits generated from Treasury bills and Eurobonds since the lenders have already paid the 5 percent tax on interest on deposits.

“We can swallow increasing taxes on interest on deposits from 5 to 7 percent and we can swallow increasing taxes on profits from 15 percent to 17 percent. But we really can’t digest taxing us twice on the bonds in our portfolio. This is clearly a tantamount to double taxation and this runs against the avoidance of double taxation which Lebanon agreed on it in the past,” one banker told The Daily Star.

The ABL argues that many banks depend heavily on revenues generated from T-bills and Eurobonds to make a profit.

Bankers note that the taxes imposed on the income generated from the financial engineering last year alone covers two-thirds of the cost of the salary scale.

“In some cases [double taxation will drastically reduce] the income of some banking institutions. The concerned authorities must realize the magnitude of the difficulties they have been facing due to the deterioration situation in the region, growing cost of complying with financial standard requirements, growing operational costs and growing costs of complying with measures to combat money laundering and terrorism funding,” one banker said.

One source said that some banks count heavily on government T-bills and Eurobonds to generate revenues and some of them hardly have any real customer deposits.

One banker added that the authorities should take into consideration that the flow of funds to Lebanon may drop once the taxes on interest on customer deposits are implemented. “I don’t think that depositors will be too thrilled to be charged 7 percent on the interest of their deposits, and could take their money somewhere else. The remittances and capital inflows could be the first victims of such hasty decisions,” the banker said.

The ABL said that the double taxation mandate imposed by the draft law on banks would also weaken the return on private funds in the banking sector, which does not exceed 11-12 percent in Lebanon – already a low rate.

Banks also have strong reservations about increasing taxes on dividends which contradicts previous agreements with the successive governments. “Increasing the tax on these shares from 5 to 10 percent contradicts all the official statements and proposals calling for the development of the capital markets in Lebanon and the strengthening of capital stock,” one banker said.

Bankers and the private sector believe that the president can rectify the serious errors in some clauses in the tax package before it is too late.

They added that some of these taxes would inflict great harm to various economic sectors in the country.

“We hope that the president would return the tax measures to Parliament with a recommendation that some of the tax measures should be reviewed or even cancelled,” one banker said.

Bankers and other associations wonder why Parliament did not endorse the 2017 draft budget first instead of passing the 20 tax items.

They insist that the state can easily finance the salary scale if it cut waste, combat corruption and improved tax collection.

Opponents of the tax measures hint that if all efforts to dissuade the authorities from implementing these taxes, then they may have no other choice but to contest these taxes before the Shura Council.

“One item which will be challenged is the double taxation. We hope that we won’t reach this stage. Many countries are avoiding double taxation to lure investors and Lebanon should not run against this trend,” one banker said.